January 31, 2006
Volume 2 Issue 47

Cycle Counts, How to and why.

Cycle counting is not intended to replace the full physical count; rather its purpose is to create a “report card” of how the inventory is doing from a control standpoint. In previous newsletters we discussed the assignment of “A B C” codes for the tracking of high moving and high profit items. These are the same codes that we will use for cycle counts. Remember that just like a full physical inventory all physical movement of product must stop in reference to the items being counted. More sophisticated inventory control software will allow you to “freeze” the cycle and assign a name to the cycle which then allows you to count cycles in the same physical time span with different counters.

You should also not just count ABC items. Periodically you should take whole rows or aisles and cycle count just those because we count not just for inventory accuracy but we also want to verify the inventory is where we think it is on the system. Remember location problems create inefficient picking and wasted time (re previous newsletter). For those food guys that don’t have bin or slot locations the use of picking locations i.e. spots in the warehouse are helpful for product and people movement. Also put bulk storage on the cycle to make sure the long term goods are still where they belong and aren’t being pilfered. Lastly primary pick locations should also be cycled to assure sufficient stock and placement.

Now for the How-To, even though the computer “freezes” the inventory that doesn’t stop people from following procedures. The following method was developed by Jon and it simplifies the task that the system procedure starts and allows for the movement of goods in the warehouse while the “cycle” is being counted.

1. Early each morning (or just before leaving on the previous day) the cycle counter receives the list of products to be counted that day.
2. As soon as he/she receives the list, the counter goes to each warehouse location containing a product to be counted and puts a temporary label on the bin reading “Product Being Cycle Counted”. The counter also places a card in the bin to record all material movement of the product before the cycle counting process is completed. This card contains the following information in the header:

    DATE                     ITEM                      BIN LOCATION         

Four columns on the card allow anyone removing material or placing stock in the bin to record that transaction:

TIME    TYPE OF TRANS   ORDER NUMBER   QUANTITY

3. After the cards and labels have been distributed, the counter will note the time, and print the count sheet to record the quantities of the items being cycle counted. He/she will then proceed to count the items.
4. Whenever an employee fills an order or puts away a stock receipt for an item being counted, he or she will note the time, type of transaction, order number, and quantity involved on the card that was previously placed in the bin.
5. As an item is cycle counted, the cycle counter will look at the transactions listed on the card, comparing the time of each transaction to the time of the count:
   1. Quantities on customer orders, work orders, outgoing transfers, and other material disbursements removed from the bin before the count was taken will be added to the quantity actually counted. The result represents the on-hand quantity of the product when the cycle counting process began. The computer's on-hand quantity for these orders has not yet been reduced, but the material has been removed from the shelf.
   2. Quantities on stock receipts placed in the bin before the count is taken will be subtracted from the count quantity. These quantities were not included in the computer's on-hand quantity at the beginning of the cycle counting process.
6. If there is a discrepancy between the quantity listed on the cycle count sheet and the on-hand quantity, the cycle counter will note the discrepancy, not the actual quantity on hand. For example, he or she might note "-2 pieces" if the sheet says there should be 42 pieces and the actual on-hand quantity is 40 pieces. Noting the difference rather than the actual quantity will allow the perpetual inventory system to be updated any time after the cycle count has been completed, even after additional transactions for the item have been processed!
7. As the counter finishes the count of each item, he or she will remove the count label and count card from the bin.
8. If there are discrepancies between the computer's perpetual on-hand quantity and the quantity actually counted, the counter will proceed to the staged orders, will call, and tag and hold areas of the warehouse. All paperwork for these filled but still-open orders should be kept in one place. The counter will look through the orders looking for any quantities of items that were counted that day but not yet confirmed in the system. These quantities will be added to the quantity he or she actually counted. If this process is cumbersome and time consuming, consider developing a computer report that lists, by part number, all outstanding orders.

This simple process has the potential to dramatically cut the time necessary to perform daily cycle counting. No longer will people roam around your facility trying to determine if a particular order was picked or put away before or after a product was cycle counted. The result: More accurate inventories with less effort and frustration, a winning combination for any organization.

CYCLE COUNTS, COUNT YOUR MONEY

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